Hemorrhaging

Pension debt to hamper city for generations

In 2007, the pension board voted to retire the debt over a 20-year span, which required taxpayers to boost significantly their annual payments to the fund. The good news, though, was that the debt would be eliminated in 20 years. But, significantly, the 20-year amortization applied only to the $1.2 billion unfunded liability as of 2007. Since then, another $1 billion in debt has been wracked up, and no one can say with any confidence when the fund will achieve a 100 percent funded ratio and zero liability.

The actuary's earlier projection that the debt would be almost completely retired by 2033 is now out the window. Under this overly optimistic estimate, the taxpayers' annual contribution to the pension plan would have increased steadily to a peak of $330 million in 2028. Now, barring an unexpected miracle on Wall Street, it is likely the burdensome $330 million required payment will be reached many years sooner, and the peak contribution will ultimately be much, much higher.

Mayor Sanders and the City Council are now grappling with how to close a $54 million deficit for the fiscal year that begins on July 1. But they also have an obligation to look beyond the present and address the looming tidal wave of pension debt before it swamps San Diego in insolvency. The urgent need for fundamental pension reforms – not mere tinkering at the margins – has never been greater. Among the actions that must be taken now:

Indefinite pay freeze. One of the quickest ways to slash the pension debt is to hold the line on raises for all city workers, including those in the costly police and fire departments. The pension projections assume salary hikes of 4.5 percent a year. Because retirement benefits are tied to salary levels, a multiyear pay freeze would slash the retirement fund debt by hundreds of millions of dollars.

Suspension of yearly cost-of-living hikes for retirees. Temporarily halting the automatic 2 percent annual boost provided to retirees would also yield significant savings. Once the city has regained its fiscal health, the COLA can be renewed as conditions merit.

Elimination of the Supplemental Pension and Savings Plan. This additional retirement benefit, granted on top of the exceedingly generous regular pension plan, is a costly perk that should be eliminated. Doing so would save taxpayers up to $24 million a year.

Elimination of the employee retirement “pick-up.” The city charter provides that the costs of the pension system should be shared on a 50-50 basis between workers and taxpayers. But under labor contracts negotiated in recent years, the city has agreed to pick up a big chunk of the employees half. Returning to an equitable 50-50 split would save $16 million a year.

Elimination of DROP. Ending this double-dipping retirement perk, which is outrageous under any circumstances, would yield savings of $22.5 million a year.

The long-festering crisis confronting San Diego is simply too great for Mayor Sanders and the City Council to continue business as usual, with the public employee unions exerting overweening influence. It is past time for real reform of San Diego's lavish and unsustainable retirement benefits.